Is borrowing in super losing its lustre?

By Gerv Tacadena

It seems like borrowing in super is losing the steam it had since it was introduced in 2007.

It seems like borrowing in super is losing the steam it had when it was introduced in 2007.

According to Nestegg.com.au, the changes in rules and the stricter lending environment in Australia have affected the limited recourse borrowing arrangements (LRBA), which are the structures employed when borrowing in superannuation.

Figures from the Australian Taxation Office (ATO) show that LRBA recorded a considerable decline in growth last year: From 45% in the previous year, the increase in the value of LRBAs slowed to 1.6%.

Over the past years, there were lenders such as AMP and CBA that axed their self-managed super fund (SMSF) lending. All major banks in Australia decided to quit SMSF lending and are now only servicing existing clients. The most recent exit was that of Macquarie Bank, whose executives said the move was part of its efforts to update its residential property segment.

ATO's December quarter figures also revealed that the overall value of SMSF assets declined from $728bn to $726bn.  However, the total number of SMSFs increased to 597,009 as the overall count of members reached 1,127,304.

ATO assistant commissioner Dana Fleming told Nestegg.com.au that the "maturation of the sector" was behind the slowdown in the number of SMSF establishment.

"The take-up period always has a really high trajectory, that’s where we were at for quite a long period of time," she said.

A report released recently by the Council of Financial Regulators (CFR) and the Australian Tax Office (ATO) found that LRBAs in SMSFs do not pose risks to the financial system.

According to the study, LRBAs are "completely exclusive" to SMSFs and make up a small proportion of SMSF assets. In fact, 8.9% of SMSFs have LRBA in place while LRBAs take up 5.2% of overall SMSF assets which represent 1.4% of total superannuation assets.

While the Government believes these figures are low and there is no need to make any changes to LRBAs, it still plans to request CFR and ATO to ensure that SMSF borrowing does not pose systemic risks.

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